JBIO US Equity☆

Item 1A. Risk Factors 41

Item 1B. Unresolved Staff Comments 89

Item 2. Properties 89

Item 3. Legal Proceedings 89

Item 4. Mine Safety Disclosures

PART II

Item 6. Reserved 91

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 98

Item 8. Financial Statements and Supplementary Data 99

Item 9A. Controls and Procedures 99

Item 9B. Other Information 99

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 99

PART III

Item 10. Directors, Executive Officers and Corporate Governance 100

Item 11. Executive Compensation 100

Item 14. Principal Accounting Fees and Services 100

PART IV

Item 15. Exhibits, Financial Statement Schedules 101

Signatures

SUMMARY

OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS

Our

business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These

risks include, but are not limited to, the following:

The

material and other risks summarized above should be read together with the text of the full risk factors below and in the other information

set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as

in other documents that we file with the U.S. Securities and Exchange Commission, or the SEC. If any such material and other risks and

uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely

affected. The risks summarized above or described in full under Item 1A of this Annual Report on Form 10-K are not the only risks that

we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially

adversely affect our business, prospects, financial condition and results of operations.

SPECIAL

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This

Annual Report on Form 10-K contains express or implied forward-looking statements that are based on our management’s belief and

assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking

statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known

and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different

from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements

contained in this Annual Report on Form 10-K include, but are not limited to, statements about:

● our clinical and regulatory development plans;

● the timing or likelihood of regulatory filings and approvals for AV-101;

● our ability to commercialize AV-101, if approved;

● the pricing and reimbursement of AV-101, if approved;

● regulatory developments in the United States and foreign countries;

● the rate and degree of market acceptance of AV-101;

● the success of competing therapies for PAH that are or may become available;

● our ability to attract and retain key scientific or management personnel;

● our financial performance;

In

some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,”

“intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”

“potential,” “continue” or the negative of these terms or other comparable terminology. These statements are

only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties,

and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual

results to differ materially from current expectations include, among other things, those listed above under “Summary of the Material

Risks Associated with Our Business” and under the section titled “Risk Factors” and elsewhere in this Annual Report

on Form 10-K. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events

or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is

a guarantee of future performance. You should read this Annual Report on Form 10-K and the documents that we reference in this Annual

Report on Form 10-K and have filed with the Securities and Exchange Commission, or the SEC, as exhibits hereto completely and with the

understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking

statements.

The

forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K.

We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking

statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You

should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this

Annual Report on Form 10-K.

This

Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business and the markets

for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies

is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are

assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our

own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research

firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware

of any misstatements regarding any third-party information presented in this Annual Report on Form 10-K, their estimates, in particular

as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on

various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Annual Report on

Form 10-K.

PART

I

Item

1. Business.

Unless

the context requires otherwise, references in this Annual Report on Form 10-K to “Aerovate”, “we”, “us”

and “our” refer to Aerovate Therapeutics, Inc.

Overview

We

are a clinical stage biopharmaceutical company focused on developing drugs that meaningfully improve the lives of patients with rare

cardiopulmonary disease. Our initial focus is on advancing AV-101, our dry powder inhaled formulation of imatinib for the treatment of

pulmonary arterial hypertension, or PAH, a devastating disease impacting approximately 70,000 people in the United States and Europe.

Imatinib, marketed as Gleevec tablets, was originally developed for the treatment of multiple cancers. Oral imatinib also demonstrated

statistically significant improvement on the primary endpoint, six-minute walk distance, and multiple secondary hemodynamic endpoints

in PAH patients in an international Phase 3 trial conducted by Novartis but was poorly tolerated due to adverse events, or AEs, and never

approved for the treatment of PAH. AV-101, delivered using a dry powder inhaler, is designed to provide lung concentrations at or above

those observed with the oral dose while limiting systemic levels of the drug. We have completed a Phase 1 study in healthy volunteers

and AV-101 was generally well-tolerated with no serious adverse events reported. We announced the initiation of Inhaled iMatinib

Pulmonary Arterial Hypertension Clinical Trial (IMPAHCT), our Phase 2b/Phase 3 trial of AV-101 in PAH patients in December 2021,

and we have assembled a team with deep expertise in developing innovative PAH and inhaled therapies and commercializing novel drugs.

PAH

is an orphan disease with unmet medical need and is characterized by high pressure in the vessels transporting blood from the right side

of the heart to the lungs. This high pressure is caused by abnormal cellular proliferation, which over time results in narrowing of the

pulmonary vessels and forces the heart to work harder to pump blood through the lungs. The severe blood flow restriction and strain on

the heart becomes increasingly severe over time and ultimately leads to heart failure that is often fatal. We estimate there are between

30,000-40,000 patients treated with approved PAH therapies in the U.S. alone, many of whom are on two or more approved PAH therapies.

It is estimated that the combined global sales for PAH products in 2021 was $5.9 billion. Despite the availability of multiple

approved therapies, PAH has a five-year survival rate for newly diagnosed and prevalent patients between 61% and 65%. None of the approved

therapies directly address the abnormal cellular proliferation of the pulmonary vasculature that causes the increased resistance to blood

flow. We believe that novel treatments that primarily address abnormal cellular proliferation may provide therapeutic benefit to PAH

patients and lead to improved quality of life.

Our

focus on developing AV-101 is driven by historical results from the Phase 3 IMPRES clinical trial of oral imatinib for the treatment

of PAH patients. Oral imatinib is a well-characterized targeted kinase inhibitor and approved oncology treatment, but clinical trials

also supported its potential for the treatment of PAH. The Phase 3 IMPRES trial was a placebo-controlled clinical trial of oral imatinib,

conducted globally by Novartis, in 202 PAH patients whose disease was not adequately controlled by two or all three classes of approved

PAH therapies. After 24 weeks of treatment with oral imatinib, patients achieved on average an increase of 32 meters (p=0.002) compared

to placebo in the distance they could walk in six minutes, a measure known as the 6MWD. A key secondary endpoint in the IMPRES trial

was pulmonary vascular resistance, or PVR, which is an objective measure of hemodynamic disease severity in PAH patients. After 24 weeks

of treatment with oral imatinib, patients achieved an average PVR improvement (reduction) of 32% (p<0.001) compared to placebo with

a significant increase in cardiac output (p<0.001). The magnitude of improvement in both 6MWD and PVR is notable because no other

PAH drug has shown such an improvement in a Phase 3 trial on top of at least two background therapies. However, treatment with oral imatinib

was also associated with significant tolerability issues and adverse events, including nausea, edema, diarrhea and vomiting. Patients

taking oral imatinib also experienced serious adverse events, the most frequent of which were anemia (7%), worsening of pulmonary hypertension

(6%), dyspnea (6%), peripheral edema (6%), presyncope (5%), diarrhea (3%), device-related infection (3%), subdural hematoma (2%) and

syncope (1%). Despite the clinical effects of oral imatinib 26% of patients on oral imatinib, compared to 7% on placebo, discontinued

due to AEs by 24 weeks.

Our

company was formed to develop an inhaled formulation of imatinib as a means of delivering therapeutically relevant drug concentrations

to the lungs while minimizing systemic exposure, which we believe is the source of the observed intolerability of oral imatinib. We have

brought together leaders both in the field of PAH drug development as well as in the area of inhaled drug formulation to invent AV-101,

a drug/device combination designed to deliver imatinib directly to the lungs. We have completed a Phase 1 trial of AV-101 in 82 healthy

adults. Repeat inhaled doses of up to 90 mg were well-tolerated and resulted in systemic plasma levels that were below those observed

with the 400 mg oral dose of imatinib (Gleevec) used in the IMPRES trial. According to pharmacokinetic models of lung exposure to imatinib

as applied to our Phase 1 dose range, the predicted lung concentrations of imatinib delivered by AV-101 overlapped or surpassed those

predicted from the 400 mg dose of oral imatinib in our Phase 1 trial. There were no serious adverse events associated with AV-101. The

most common adverse event was a transient cough primarily in the highest dose cohort, which was generally mild, and resolved within 30

minutes of dosing. There were no discontinuations due to cough. The intended Phase 2b dose range with AV-101 will only include doses

that use 40% or less of the amount of dry powder that was inhaled at the highest Phase 1 dose and, based on the results of our Phase

1 trial and our modeling, we expect lung concentrations of imatinib delivered by AV-101 in the 35 mg and 70 mg doses, both twice a day,

or BID, selected for the Phase 2b portion of our Phase 2b/Phase 3 trial to overlap or surpass the lung concentrations predicted with

the 400 mg oral dose in our Phase 1 trial, which was the same target dose used in the Phase 3 IMPRES trial.

In

December 2021, we announced the initiation of IMPAHCT, our global double-blinded, placebo-controlled, randomized Phase 2b/Phase 3 trial

of AV-101 in PAH patients taking at least two background therapies. The Phase 2b portion of this trial will enroll approximately 200

PAH patients and is designed to assess safety, tolerability and inform dose selection for the Phase 3 portion using changes in PVR, an

objective measure of the effect of AV-101 on hemodynamic function in PAH patients, as the primary endpoint. We will measure 6MWD as a

secondary endpoint in the Phase 2b portion of this trial. We anticipate that topline data from the Phase 2b portion of this trial will

be available in the middle of 2023. In the Phase 3 portion of the trial improvement in 6MWD will be the primary endpoint. If the results

of the Phase 3 trial show a statistically significant increase in 6MWD, we plan to submit a New Drug Application, or NDA, with the United

States Food and Drug Administration, or FDA, and Marketing Authorization Application, or MAA, with the European Commission for AV-101

for the treatment of PAH. These applications will leverage the existing safety data for Gleevec oral tablets allowing the company to

save time and money. If AV-101 is approved, we believe it has the potential to become an important addition to existing therapies for

PAH in both the United States and Europe.

We

are pursuing a clinical development program utilizing established endpoints for development of previous PAH drugs, as well as enrollment

criteria and dosing duration previously studied in oral imatinib PAH trials. At our April 14, 2021 end-of-Phase 1 meeting with the FDA,

we received regulatory guidance that our clinical program could support a NDA submission; however, the process of clinical development

is inherently uncertain and there can be no guarantee that we will obtain marketing approval. AV-101 has been granted orphan drug designation

by the FDA and the EMA for the treatment of PAH. We have filed for patent protection of the composition of the aerosol, drug product,

manufacturing and methods of use. We retain worldwide commercial rights to AV-101.

Our

Team

Our

executive management team has extensive experience in the clinical development and the commercialization of orphan drug indications.

Timothy P. Noyes, our Chief Executive Officer, was a senior executive at GelTex Pharmaceuticals, Inc., or GelTex, and Genzyme Corporation,

or Genzyme, where he headed all launch planning and the commercialization of Renagel, a treatment for hemodialysis patients that resulted

in Genzyme’s acquisition of GelTex for more than $1 billion. Benjamin T. Dake, Ph.D., our Founder, President, Chief Operating Officer

and Secretary, a cancer biologist, investor and entrepreneur, recognized the potential benefits of developing a lung-targeted imatinib

and secured multiple rounds of funding to build the team at Aerovate with experts like Ralph Niven, Ph.D., our Chief Development Officer,

who has over 30 years of expertise in translational medicine and inhalation dosage forms, and Hunter Gillies, M.B.Ch.B., our Chief

Medical Officer, who has led Phase 2 and Phase 3 PAH trials at Pfizer Inc., or Pfizer, and Gilead Sciences, Inc., or Gilead, and has

designed and executed PAH trials with several smaller biotechnology companies. George A. Eldridge, our Chief Financial Officer, has

served as CFO for several biotechnology companies, leading four of these companies to the public markets. Marinus Verwijs, our Senior

Vice President of CMC, has over 15 years of product development and manufacturing experience. He has worked on multiple commercial products,

leading them from clinical product development to NDA filing and commercial launch. Timothy Pigot, our Senior Vice President of Commercial, has over 25 years

of industry experience working to launch and commercialize a range of products over multiple therapeutic areas. Mr. Pigot gained significant

experience in PAH during his 12 years at Gilead and 11 years at Pfizer. where his responsibilities included the launches of Revatio and

Letairis for the treatment of PAH. Donna Dea, our Head of Regulatory Affairs, has over

30 years of global regulatory experience designing and implementing regulatory strategies resulting in the approval of treatments for

asthma, COPD, rhinitis and others, for which several of these drugs involved inhaled formulations.

Our

Strengths

We

believe that our company and AV-101 possess the following attributes that may potentially increase the likelihood that we will be successful

in developing and commercializing AV-101:

●

Significant efficacy of oral imatinib. In the global Phase 3 IMPRES trial, oral imatinib demonstrated

statistically and clinically significant efficacy following 24 weeks of treatment on top of PAH standard of care. These results were

notable for achieving statistically significant improvements in the study’s primary efficacy endpoint, 6MWD, and a key secondary

endpoint, PVR, but also for hitting statistical significance on other clinically relevant efficacy endpoints on top of standard of care,

which included at least two background PAH therapies. The primary endpoint of the Phase 2b portion of our Phase 2b/Phase 3 trial is the

change in PVR following 24 weeks of treatment. The primary endpoint of the Phase 3 portion of our Phase 2b/Phase 3 trial is the change

in 6MWD following 24 weeks of treatment. Our Phase 2b/Phase 3 trial is designed to treat a similar patient population to the IMPRES trial,

patients in WHO Functional Classes II-IV taking at least two background PAH therapies.

●

Distinct PAH treatment mechanism. Unlike all approved treatments for PAH, which act primarily through

vasodilation, AV-101 is designed to directly address the abnormal cellular proliferation in the pulmonary vasculature that causes the

increased resistance to blood flow and heart failure. We believe AV-101’s mechanism uniquely positions our product candidate, if

approved, for combination therapy with existing vasodilator treatments.

●

Adaptive development path. We have planned an innovative Phase 2b/Phase 3 clinical trial based on

an adaptive design that could lead to a potential NDA filing. Our development plan also benefits from our ability to leverage prior toxicology

work done with oral imatinib.

●

Improved tolerability based on route of administration. Our inhaled administration is designed to minimize systemic exposure and

limit the safety and tolerability concerns observed in the IMPRES trial of oral imatinib in PAH. Our Phase 1 results in healthy volunteers

demonstrated that plasma levels of imatinib were lower than those observed with the 400 mg oral dose of imatinib used in the IMPRES trial.

●

Expected comparability of concentrations of drug delivered. Based on the results of our Phase 1

trial and our modeling, we expect lung concentrations of imatinib delivered by AV-101 in the 35 mg and 70 mg doses, both BID, selected

for the Phase 2b portion of our Phase 2b/Phase 3 trial to overlap or surpass the lung concentrations predicted with the 400 mg oral dose

in our Phase 1 trial, which was the same target dose used in the Phase 3 IMPRES trial.

●

Powerful barriers to entry. We have generated strong intellectual property claims and other barriers

to entry. We own one issued U.S. patent and several U.S. and foreign patent applications to protect our proprietary imatinib formulation,

our drug product and methods of use. In addition, we have obtained exclusive access to a commercially available dry powder delivery device

which we believe will create a substantial competitive advantage.

●

Substantial and readily addressable market opportunity. If AV-101 is approved, we believe there

is a substantial medical need and market opportunity for combining AV-101 with existing standard of care, which is often two or three

background agents. Beyond this base case, we also believe that AV-101, if approved, could benefit a larger group of PAH patients with

earlier-stage disease such as those patients receiving only one other PAH therapy.

●

Strong leadership in PAH. Our executive management team has extensive experience in the clinical

development of treatments for PAH, including Dr. Gillies who has been developing drugs for PAH for more than 20 years and recently

ran the AMBITION trial that established the current first-line PAH combination therapy and Dr. Niven’s experience in manufacturing

and development for inhaled small molecules. In addition, our Clinical Advisory Board includes several of the premier thought leaders

in PAH who have extensive experience developing drugs and caring for patients suffering from PAH.

Our

Strategy

Our

strategy is to develop and commercialize AV-101 for patients suffering from PAH. Key elements of our strategy include our plans to:

●

Complete regulatory discussions for AV-101 in the United States and Europe. At our April 14, 2021

end-of-Phase 1 meeting with the FDA, we received regulatory guidance that our Phase 2b/Phase 3 trial, if successful, could support a

NDA submission using the change in 6MWD compared to placebo as the primary endpoint in the Phase 3 portion of the trial; however, the

process of clinical development is inherently uncertain and there can be no guarantee that we will obtain marketing approval even if

we successfully achieve our primary endpoint. We have been granted orphan designation for PAH from the FDA and from the European Commission

in the European Union. We completed the formal process of seeking scientific advice and regulatory guidance from the European Medicines

Agency, or EMA, regarding its requirements for regulatory approval and we believe that, if successful, our existing clinical program

could support a marketing authorization application, or MAA submission for regulatory approval in Europe.

●

Advance AV-101 through NDA submission. In December 2021, we announced initiation of IMPAHCT, our

Phase 2b/Phase 3 trial of AV-101 in PAH patients taking at least two approved PAH therapies. The Phase 2b portion of this trial will

be a dose-ranging trial in which PVR will be the primary endpoint. The Phase 3 portion of the trial will be based on the optimal dose

selected in the Phase 2b portion and 6MWD will be the primary endpoint.

●

Commercialize AV-101 directly in the United States. If AV-101 is approved by the FDA, we intend

to commercialize it ourselves in the United States with a specialty sales force focused primarily on pulmonologists and cardiologists

treating adult patients suffering from PAH. We will consider entering into collaborations for the development and commercialization of

AV-101 in Europe, Asia or other geographic regions, if approved by foreign regulatory authorities.

●

Pursue additional indications for AV-101. We believe that AV-101 could have clinical applications

in other groups of PAH patients, such as those with earlier-stage disease who may be receiving only one other PAH therapy. We also may

consider the potential use of AV-101 in other types of pulmonary vascular disease.

●

Expand our pipeline by accessing additional product opportunities. We plan to search for additional

product opportunities available for license or acquisition that could be supported by the commercial infrastructure we build to successfully

launch AV-101 in the United States if it is approved for marketing.

PAH

Background and Limitations of Current Treatments

PAH

is a progressive, life-threatening orphan disease characterized by increased pressure in the pulmonary arteries, vessels responsible

for carrying deoxygenated blood from the heart to the lungs. This increased pressure is caused by narrowing of these blood vessels as

a result of dysregulation of cells of the arterial wall, leading to excessive growth and proliferation. Over time, blood flow worsens

as inflammatory cells are recruited and inflammatory cytokines further stimulate the proliferation of blood vessel cells. This ultimately

leads to tissue scarring, fibrosis and blood vessel remodeling, resulting in severe restriction of blood flow (as illustrated in the

figure below) and increased risk of developing blood clots and heart failure.

Figure

1. Increased pulmonary resistance is caused by cell proliferation that obstructs blood flow.

This

severe restriction of blood flow also causes the heart to work harder to circulate blood through the lungs causing abnormal strain on

the right ventricle of the heart resulting in PAH symptoms that worsen over time; these commonly include breathlessness, fatigue, chest

pain, fainting or light headedness, as well as abdominal distension. Four PAH functional classes categorize patient symptom severity

and ability to carry out physical activity. Higher numbered functional classes indicate worsening symptoms and are associated with higher

mortality. The four functional classes established by the World Health Organization, or WHO, are detailed in the figure below.

FIGURE

2. WHO PAH FUNCTIONAL CLASSES

FUNCTIONAL CLASS DESCRIPTION

Prevalence

of PAH and Unmet Need

Based

on third-party estimates, the number of PAH patients diagnosed is between 30,000 and 40,000 in the United States with an average age

at diagnosis of 53 years old and 65% to 80% of those diagnosed being women. The exact prevalence of PAH worldwide is not known but it

has been estimated to be between 10 to 52 cases per million. Many drugs have been developed and made commercially available for the treatment

of PAH, such as vasodilators, and it is estimated that the combined global sales for PAH products in 2021 was $5.9 billion.

While advances in the treatment of PAH using vasodilatory agents over the last two decades have markedly improved survival, PAH patients

still face significant disease burden and premature death. The five-year survival rate for newly diagnosed and prevalent patients is

between 61% and 65%. Clearly there is unmet need for new therapies beyond the standard of care.

Limitations

of Current Therapies for PAH

The

current standard of care in PAH consists of drugs that act primarily as pulmonary vasodilators, which relax the muscles in the pulmonary

arterial walls, thereby reducing the degree of blood vessel constriction. Although the current standard of care provides some benefit

to patients, it is clear from the pathology of PAH that abnormal cellular proliferation causes progressive narrowing of the pulmonary

vasculature. This abnormal proliferation is not addressed by therapies currently used to treat PAH.

Three

classes of pulmonary vasodilators are currently used to treat PAH: endothelin receptor antagonists, nitric oxide pathway modulators and

prostacyclins.

●

Endothelin Receptor Antagonists. Some treatments currently approved for PAH work by blocking the action of endothelin-1, a potent

vasoconstrictor, and are referred to as endothelin receptor antagonists, or ERAs. These drugs include bosentan, macitentan and ambrisentan.

All three of these drugs are orally administered and improve blood flow to the lungs as determined by measures of hemodynamics such as

pulmonary vascular resistance and cardiac output, which translates to improvements in exercisability as measured by the distance that

patients can walk in a fixed period of time (6MWD).

●

Nitric oxide pathway modulators such as PDE5 inhibitors and sGC’s. Nitric oxide is a naturally occurring molecule that is

widely recognized as important in a number of biological processes. It causes blood vessels to relax and widen via the second messenger

cGMP, resulting in an increase in blood flow. Two common modalities utilize the nitric oxide pathway to result in vasodilation: Phosphodiesterase

type 5, or PDE5, inhibitors prevent the breakdown of cGMP and soluble guanylate cyclase stimulators, or sGC’s, increase the production

of cGMP independent of nitric oxide. Several oral PDE5 drugs are available, such as sildenafil and tadalafil. Additionally, riociguat

is the only sGC approved for PAH.

●

Prostacyclin pathway modulators. Patients with PAH have been shown to have reduced levels of prostacyclin,

a naturally occurring lipid that has the effect of relaxing the smooth muscles surrounding arteries, resulting in vasodilation. Prostacyclin

analogues, such as iloprost and treprostinil, are approved therapies for PAH. Selexipag is an oral prostacyclin-like drug approved for

PAH. In addition to the challenges associated with dosing, prostacyclin therapy can be difficult to tolerate. In clinical trials subcutaneous

infusion of these agents has shown severe infusion site adverse events requiring narcotics for these symptoms. The oral prostacyclins

also have a high incidence of headache and diarrhea, nausea, vomiting, and flushing, which can lead to discontinuations.

PAH

patients are often treated with more than one of these drugs and new therapies are typically added to existing therapies rather than

replacing drugs that are providing insufficient benefit. Based on both primary research and third party sources, we estimate that a majority

of patients are taking two or three FDA approved drugs for the treatment of PAH. Oral therapies are commonly prescribed first-line, typically

consisting of an ERA and PDE5 inhibitor. As patients progress in their disease severity, a prostacyclin can typically be added as a third

agent. Although these therapies have been shown to improve exercise capacity, quality of life, pulmonary pressure and short-term survival,

none of the current treatments are curative and patients remain on life-long therapy with poor long-term prognosis.

Our

Approach, AV-101

We

are developing AV-101 as a drug/device combination product that delivers imatinib directly to the lungs via inhalation. The product consists

of capsules of particulate imatinib that will be used in conjunction with a dry powder inhaler device. We believe that delivery of imatinib

directly to the lungs will maximize the amount of drug in the targeted tissues while minimizing systemic exposure. Furthermore, we believe

that delivering imatinib in this way may improve the tolerability of treatment while maintaining imatinib’s known effects on exercise

capacity and hemodynamics. AV-101 has been granted orphan drug designation by the FDA and the European Commission for the treatment of

PAH.

Potential

of Imatinib to Treat PAH

The

molecule in AV-101, imatinib, has demonstrated improvement on the primary and multiple secondary endpoints in a global Phase 3 trial

(IMPRES) conducted by Novartis in PAH patients on top of at least two standard of care PAH drugs. However, when administered orally,

serious adverse events, and discontinuations were high and the oral version was never approved for PAH. We believe imatinib is unique

amongst tyrosine kinase inhibitors for its specificity and potency. At pharmacologically achievable levels, it inhibits only a handful

of kinases, such as PDGFR, KIT, DDR and ABL, which have been implicated in PAH disease processes. Other tyrosine kinase inhibitors that

target the same binding pocket are more promiscuous. Recent academic focus on kinase inhibition in PAH has been on PDGFR. However, other

kinase inhibitors that hit PDGFR also inhibit the closely related SRC and VEGFR kinases. These drugs have been shown to induce

or exacerbate PAH. Thus, we believe clinical success with kinase inhibition in PAH is not dictated by inhibiting PDGFR

alone, but rather by the kinase inhibition. We are encouraged that imatinib, the molecule in AV-101, has shown clinical effects

in the IMPRES trial, and we believe inhaled delivery of AV-101 limits systemic exposure and may mitigate the tolerability issues observed

with oral imatinib.

Kinase

inhibitors have been approved for the treatment of various cancers. Case reports of improvements in PAH in patients receiving oral imatinib,

marketed as Gleevec by Novartis, led to several clinical trials designed to test the efficacy of imatinib for PAH. The IMPRES trial was

a randomized, double-blind global Phase 3 trial conducted by Novartis that enrolled 202 PAH patients. Most of these patients had Functional

Class II or Class III PAH and were already on at least two background therapies. Patients were randomized to receive oral imatinib or

placebo for 24 weeks.

Patients

enrolled in the IMPRES trial had reduced exercise capacity compared to healthy adults as measured by the six-minute walk distance, or

6MWD, a simple test that has been used as a primary endpoint for the approval of multiple drugs to treat PAH. The mean baseline 6MWD

for patients in this trial was 361 meters, whereas for healthy adults it has been reported to be approximately 600 meters The baseline

6MWD values in these patients upon enrollment was below normal for healthy adults despite the fact that they were all on treatment with

at least two PAH therapies and 41% were on triple therapy, the maximal standard of care for PAH. Patients remained on their respective

pre-trial PAH therapies throughout the trial.

The

target dose of oral imatinib in the IMPRES trial was 400 mg/day which is an approved dose of oral imatinib for the treatment of cancers

such as chronic myelogenous leukemia, or CML, and metastatic malignant gastrointestinal stromal tumors, or GIST, containing specific

genetic alterations. Treatment of PAH patients with 400 mg oral imatinib led to a significant improvement in 6MWD over baseline compared

to placebo. This difference was significant at 12 weeks with significance observed at all consecutive timepoints through the end

of the trial at 24 weeks, at which point the oral imatinib-treated patients achieved an average improvement of 32 meters vs placebo in

the 6MWD (p=0.002). The magnitude of this improvement is notable because no other PAH drug has shown such an improvement in a Phase 3

trial on top of at least two background therapies. The most recently approved oral PAH drug, Uptravi (Selexipag), showed a 12-meter treatment

effect in the Phase 3 GRIPHON trial. The patients in this trial were not as heavily treated as those in the IMPRES trial, with one third

on double therapy and none on triple therapy. The figure below shows the improvement over time in 6MWD of PAH patients treated with oral

imatinib on at least two standard of care therapies as compared to the placebo group in the Phase 3 IMPRES trial.

Figure

3. Imatinib led to a significant increase in 6MWD on top of at least two standard of care therapies

The

improvement in 6MWD with oral imatinib treatment was observed across all patient subgroups regardless of treatment with other PAH therapies

(as seen in the figure below). We believe this observation suggests that oral imatinib improved 6MWD through a mechanism that was independent

of patients’ background therapies.

Figure

4. Imatinib led to improvements in 6MWD compared to placebo regardless of patients being treated concurrently with at least two approved

PAH therapies

In

addition to improvements in 6MWD, patients treated with imatinib had greater improvements in multiple secondary endpoints, including

measures of hemodynamics. Importantly, there was a significant improvement at 24 weeks in PVR (p<0.001), a measure of how difficult

it is for blood to circulate through the lungs. Damaged pulmonary blood vessels make it more difficult for the heart to pump blood through

the lungs, leading to increased pulmonary arterial pressure, increased workload on the heart, and if not resolved, heart failure. PVR

is frequently used as a quantitative measure in PAH Phase 2 trials to determine the appropriate dose for registrational Phase 3 trials

that directly measure changes in patient exercise capacity, such as 6MWD. Patients treated with imatinib had a significant reduction

in PVR at 24 weeks, as noted in the blue box in the figure below. PVR was virtually unchanged compared to baseline in placebo treated

patients. Consistent with the improvements in PVR, significant improvements compared to placebo treated patients, as shown in the figure

below, were also observed in mean pulmonary artery pressure, or mPAP, which was decreased by 5.2 mm Hg; cardiac output, or CO, which

was increased by 0.88 liter/min; and right arterial pressure, or RAP, which was decreased by 1.7 mm Hg. An echocardiography sub-study

of 74 IMPRES patients showed that patients randomized to oral imatinib showed significant improvements in certain measures of right ventricle

function after 24 weeks compared with placebo. Significant and consistent changes across hemodynamic and echo measures suggest a benefit

of imatinib for the treatment of PAH with the potential to result in long-term improvements in pulmonary and cardiac function.

Figure

5. Imatinib treatment led to significant improvements across multiple secondary endpoints including PVR (highlighted), an endpoint frequently

used in Phase 2 dose-finding trials (Patients included in analyses of hemodynamic parameters include those who completed the study

plus those who discontinued early but had a right heart catheterization performed at discontinuation.)

Long-Term

Extension Study

Patients

who completed the 24 week trial were eligible to be enrolled in an open label long-term extension study. The improvements in 6MWD achieved

at 24 weeks were sustained during this extension and the mean difference in 6MWD compared to baseline improved up to 144 weeks in patients

that were able to tolerate the treatment. Although these results were very encouraging, data from the extension trial also highlighted

the major limitation in using oral imatinib to treat PAH, which was drug tolerability. Of the 103 patients originally randomized to the

imatinib arm of the core trial, only 21 remained on therapy after 180 weeks of dosing. The patients who were able to tolerate the drug

long term showed a durable continued improvement in 6MWD.

Safety

and Tolerability

The

relatively poor tolerability of oral imatinib poses challenges for the potential use in PAH patients. The AEs observed in the IMPRES

trial were consistent with the AE profile observed in cancer trials, with the exception of subdural hematoma, and led to a significant

number of discontinuations, which limited oral imatinib’s potential as a therapy for PAH. Specifically, 44% of patients treated

with oral imatinib in the IMPRES trial experienced fluid retention, which is of particular concern in PAH patients who suffer from

heart failure. The figure below lists the AEs reported in the 24-week Phase 3 IMPRES trial of oral imatinib in PAH patients on two

or more standard-of-care therapies.

Figure

6. Adverse events reported in >10% of the Imatinib group in the 24-week IMPRES trial, not including the trial extension

In

the IMPRES trial, there were 45 serious adverse events reported in imatinib treated patients, including some that were of particular

concern for PAH patients, who already have compromised cardiac function. These included worsening of PAH; anemia; dyspnea, or shortness

of breath; peripheral edema; and presyncope, or lightheadedness. Of note, subdural hematoma occurred in eight patients (two in the core

study (1.9%), six in the trial extension (4.2%)) receiving imatinib and anticoagulation.

Figure

7. Serious adverse events reported in the IMPRES 24-week trial publication, not including the trial extension

Patients

enrolled in the IMPRES trial that were not able to tolerate 400 mg/day of imatinib did not see a significant improvement in 6MWD after

24 weeks. As shown in the figure below, those patients who were not dosed with 400 mg/day for more than half of the time did not achieve

the improvements in 6MWD that were significantly distinguished from those achieved by placebo treated patients. These results suggest

that addressing the adverse events and tolerability of imatinib in PAH patients cannot be achieved by lowering the oral dose without

sacrificing this improvement. Further development of oral imatinib for the treatment of PAH was discontinued by Novartis.

Figure

8. Patients who were dosed with 400 mg/day for less than half of the duration of the trial did not achieve a significant improvement

in 6MWD

AV-101,

an inhaled formulation of imatinib

AV-101

is designed to deliver imatinib directly to the lungs to maximize the amount of drug in the targeted tissues while minimizing systemic

exposure. We believe that delivering imatinib in this way may maintain imatinib’s potential therapeutic benefits while improving

the tolerability of treatment. The oral version of imatinib, marketed as Gleevec, is delivered as tablets containing imatinib mesylate

which is a salt of imatinib. Imatinib mesylate is not readily amenable to being used in an inhaled formulation because it absorbs water

from the atmosphere if not stored in a rigorously controlled environment. Moisture uptake would lead to potential stability concerns

and a high likelihood of poor delivery performance when inhaled from any dry powder inhaler device. We also believe mesylate salt would

be a poor choice for an inhaled PAH therapy for additional reasons: (i) the mesylate group introduces a genotoxic risk; (ii) it increases

the formulation risk due to the existence of multiple crystal forms; and (iii) delivery using the mesylate salt has the potential to

release the acidic mesylate upon deposition on the lung surface which could lead to transient irritation and increase the propensity

for cough. We therefore explored other salt and polymorphs of imatinib to identify a more suitable formulation for an inhaled therapy

without altering the active molecule. We discovered a form that exhibited what we believe to be almost ideal physical chemical properties

for development as a dry powder for inhalation using capsules in a simple dry powder inhaler, or DPI.

We

also believe that dry powder inhalation is the most convenient mode of delivery to the lungs for patients. The prospective advantages

of dry powder inhalation include that such formulations (i) can be delivered via a convenient, portable and easy-to-use delivery system;

(ii) avoid the cords or batteries or bulky equipment that may be needed with nebulizers; (iii) carry less risk of microbial contamination

due to the low moisture content powder; (iv) have better anticipated shelf stability of the drug product compared to a solution dosage

form; and (v) can potentially improve lung retention of the powder imatinib compared to an aqueous nebulizer formulation, which may result

in reduced dose, dose frequency and peak exposure in the circulation.

AV-101

Phase 1

We

have completed a placebo-controlled, randomized, double-blinded, single ascending dose and multiple ascending dose Phase 1 trial of AV-101

in 82 healthy volunteers. Doses tested in the single ascending dose, or SAD, portion ranged from 1 to 90 mg of AV-101. A 400 mg dose

of oral imatinib was included as a comparator. The multiple ascending dose, or MAD, portion tested 10 mg, 30 mg and 90 mg BID for seven

days. The purpose of the trial was to establish safety and tolerability of AV-101 and to demonstrate that systemic levels of AV-101 were

lower than oral imatinib.

All

doses resulted in lower systemic plasma levels of imatinib compared to those observed following a single 400 mg oral dose. In the figure

below, the blue dashed line shows simulated steady state levels of oral imatinib in the blood extrapolated from the 400 mg cohort in

the SAD potion of our Phase 1 trial. These levels are consistent with multiple publications on oral imatinib pharmacokinetics. The other

lines show the blood concentrations following the final dose of AV-101 in the MAD portion of our Phase 1 trial, on day 7, when steady

state concentrations had been achieved. The dotted part of the 90 mg dose shows a simulated representation of an additional dose twelve

hours later to illustrate steady state BID dosing.

Figure

9. Phase 1 systemic exposure of AV-101 vs 400 mg oral imatinib.

We

also predicted lung exposures using a physiologically based pharmacokinetic, or PBPK, model built from a published method to extrapolate

lung exposures from blood levels, which was informed by our Phase 1 plasma data. Although there is inherent uncertainty associated with

all models that extrapolate data, we expect the exposures of imatinib obtained in the lungs at the dose range we intend to use in the

Phase 2b portion of our Phase 2b/Phase 3 trial of 10 mg, 35 mg and 70 mg, all BID, to overlap or surpass lung levels predicted from 400

mg oral imatinib. The dashed blue line in Figure 11 shows lung exposures extrapolated from published steady state PK data and informed

by our Phase 1 plasma data for oral imatinib at 400 mg. The solid lines show extrapolated lung levels of AV-101 doses using our PBPK

model.

Figure

10. Predicted Phase 2b lung exposures from dosing of 10, 35 and 70 mg AV-101. We expect the lung exposures of imatinib delivered by AV-101

in the dose range to overlap or surpass the predicted lung exposures from 400 mg oral imatinib

Safety

and Tolerability in Phase 1 trial

There

were no serious adverse events reported in our Phase 1 trial. There were no changes in vital signs including pulmonary function testing

and oxygen saturations. Of the less severe adverse events, there was one discontinuation at the highest dose due to vomiting and the

most frequent adverse event was a cough that was reported in 55% of volunteers at the highest 90 mg dose. This cough was transient, predominantly

mild in nature, resolved on its own within 30 minutes and did not lead to any discontinuations. We believe that the cough may be a function

of the total amount of powder delivered in the high Phase 1 dose. The intended dosing for the Phase 2b/Phase 3 trial will use less than

40% of the amount of powder that was inhaled at the highest Phase 1 dose. The figure below shows the adverse events reported in our Phase

1 MAD trial of AV-101 in healthy volunteers.

Figure

11. Adverse events reported in the Phase 1 MAD trial of AV-101 in healthy volunteers

We

submitted to the FDA summaries of the safety and tolerability findings from our Phase 1 trial along with the systemic plasma levels for

the participants from the trial. We also submitted information on our drug substance and drug product. At our April 2021 meeting, we

reached alignment with the FDA that our Phase 2b/Phase 3 trial design was acceptable and could, if successful with strong results, support

a NDA submission using the change in 6MWD compared to placebo over 24 weeks as the primary endpoint in the Phase 3 portion of our trial.

AV-101

Phase 2b/Phase 3 IMPAHCT: Inhaled iMatinib Pulmonary Arterial Hypertension Clinical Trial

In

December 2021, we announced the initiation of IMPAHCT, our global, Phase 2b/Phase 3 trial in Functional Class II through Class IV PAH

patients with inadequate disease control on at least two approved PAH therapies. This clinical trial will establish the target dose in

the Phase 2b portion then continue into a Phase 3 efficacy trial using the selected dose. The Phase 2b portion of this double-blind,

placebo-controlled randomized trial is designed to assess safety and tolerability using change in PVR, an objective measure of the effect

of AV-101 on hemodynamic function in PAH patients, as the primary endpoint to inform the selection of the appropriate dose for the Phase

3 portion of the trial. Change in 6MWD compared to placebo will be a secondary endpoint, and all efficacy endpoints will be measured

following 24 weeks of treatment. The Phase 3 portion of the trial will use the change in 6MWD compared to placebo at 24 weeks as the

primary endpoint. Secondary endpoints in the Phase 2b/Phase 3 trial will include N-terminal pro B-type natriuretic peptide, or NT-proBNP,

a biomarker associated with heart failure; hemodynamic parameters; clinical worsening; clinical improvement; change in functional class;

change in risk score; and quality of life measures. All patients completing the Phase 2b or Phase 3 portions will be invited to enter

a long-term extension trial of AV-101.

Phase

2b/Phase 3 Enrollment and Timing

The

Phase 2b/Phase 3 trial will be a single continuous trial made up of three periods.

●

We are currently in Period 1, which is the Phase 2b enrollment portion of the trial. Approximately 200

patients will be enrolled across four treatment arms, which include three dose groups of AV-101 and one placebo group. The primary endpoint

is the change in PVR compared to placebo at 24 weeks. Data from the Phase 2b portion will inform the selection of an optimal dose of

AV-101 for Phase 3. We anticipate that topline Phase 2b data will be available in the middle of 2023.

●

Period 2 begins as soon as enrollment completes in the Phase 2b portion of the trial. This second period

signifies the start of enrollment in the Phase 3 portion of the trial. We expect to complete enrollment of the Phase 2b portion of the

trial by the end of 2022 and commence enrollment of the Phase 3 portion thereafter.

●

Period 3 begins once the optimal dose is selected and will then only enroll across two treatment arms,

the optimal dose of AV-101 and the placebo arm. Once the final patient enrolled has completed 24 weeks on study, the Phase 3 portion

of the trial is complete.

Figure

12. Design of the Phase 2b/Phase 3 trial of AV-101 in PAH patients

If

the results of the Phase 3 portion of this trial show a statistically significant and potentially clinically meaningful benefit in 6MWD,

we plan to submit a NDA, with the FDA for AV-101 for the treatment of PAH.

Confirmation

of the Potential of Antiproliferative Medicines as a Novel Class of PAH Therapeutics

Although

no approved PAH therapy directly addresses the underlying cell proliferation that leads to increased pulmonary arterial pressure, the

concept behind targeting cell proliferation to treat PAH is not new. The most advanced antiproliferative compound in the clinic is sotatercept,

a molecule that blocks signaling of members of the TGF-beta family of growth factors. Results from a Phase 2 clinical trial in PAH showed

that sotatercept led to a reduction in PVR, providing further support for the therapeutic potential of antiproliferative product candidates

in PAH. We are encouraged by these results as they provide independent confirmation of the importance of antiproliferative products as

a potentially broad class of PAH therapeutics to complement vasodilators. Similar to the vasodilator field, we believe that PAH patients

may benefit from treatment with multiple antiproliferative therapies directed against different targets.

Manufacturing

and Supply

We

use third-party contract manufacturers for the production of AV-101. Our active pharmaceutical ingredient, or API, can be purchased from

multiple contract manufacturers in compliance with the FDA’s current Good Manufacturing Practice, or current GMP, regulations and

European Pharmacopoeia, or EP, standards. The final step in the manufacture of API is completed at one of two contract manufacturing

organizations that comply with the FDA’s current GMP regulations. AV-101 finished product is processed for aerosol use and filled

into capsules by our contract fill/finish provider in the United States, which is required to comply with current GMP regulations. As

AV-101 is a drug-device combination product, we have contracted with a third-party to manufacture the single-dose inhaler device that

we use for delivering inhaled AV-101 to patients in our Phase 2b/Phase 3 clinical trial.

Release

and stability testing to date show stability

of at least 18 months for one batch of API under conditions at a temperature of 25° Celsius and 60% relative humidity and 12 months

for our bulk processed powder. We expect that stability testing for our bulk API and drug product to reach at least 24 months by the

time we see topline data from our Phase 2b/Phase 3 clinical trial.

At

our April 2021 meeting, the FDA confirmed that our API, finished product, and single-dose inhaler producers are acceptable for use in

a Phase 2b/Phase 3 clinical trial. We have completed the manufacture of the initial clinical supply and have the finished product, device

and ancillary supplies positioned at our global distribution partner and drug supply has been delivered to the active clinical sites.

In

anticipation of a potential NDA filing, we plan to manufacture a minimum of three batches of API, finished product, and single-dose inhaler

devices for registration purposes and to test these batches for stability with a goal of establishing a commercial shelf life of at least

two years for finished product and bulk API.

Sales

and Marketing

Our

commercialization strategy is to develop AV-101 into a leading therapy worldwide for the treatment of PAH.

Our

Chief Executive Officer and Senior Vice President, Commercial have significant commercial experience, but beyond that we have not yet

established a sales and marketing organization. We intend to recruit our own specialty sales force in the United States focused on promoting

AV-101. We plan to target our marketing and sales efforts to pulmonologists and cardiologists who specialize in treating PAH. We believe

a specialty sales force of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs team, will

enable us to call on the pulmonologists and cardiologists who specialize in treating PAH.

We

believe that the market for AV-101 in the five largest countries in the European Union represents the bulk of the potential European

market and that China and Japan represent the bulk of the potential Asian market. We plan to enter one or multiple collaborations to

commercialize AV-101 in Europe and Asia.

We

believe AV-101 will receive coverage and reimbursement by public and commercial payors, but we cannot guarantee this will happen. For

more information regarding these risks, please see “Risk Factors—Risks Related to Commercialization—The successful

commercialization of AV-101 will depend in part on the extent to which governmental authorities, private health insurers, and other third-party

payors provide coverage and adequate reimbursement levels. Failure to obtain or maintain coverage and adequate reimbursement for AV-101,

if approved, could limit our ability to market our product and decrease our ability to generate revenue.”

Intellectual

Property

Our

commercial success depends in part on our ability to obtain and maintain proprietary protection for our products, novel discoveries,

drug development technologies and know-how; to operate without infringing on or otherwise violating the proprietary rights of others;

and to prevent others from infringing or otherwise violating our proprietary rights. Our policy is to seek to protect our proprietary